Information on Cartels
Contents at-a-glance
Why are cartels bad?
How to spot a cartel?
What can be done about cartels?
What can the CCS do?
Contact CCS
What is a cartel?
A cartel is an agreement between producers or suppliers of a good or service to limit their production and/or to fix prices. Cartel agreements could be written and formal but are usually verbal, informal and secret. There are 4 main types of cartel conduct:
(a) Price Fixing;
(b) Bid Rigging;
(c) Market Sharing; and
(d) Production Controls.
(a) Price Fixing
Price fixing involves competitors agreeing to fix, control or maintain the prices of goods or services.
Price fixing can be ‘direct’ where it involves an agreement to increase or maintain actual prices, or ‘indirect’, for example, where it involves an agreement to offer or not to offer the same discounts or credit terms. Price fixing agreements do not have to be in writing. They can be just a ‘wink and a nod’, or a verbal understanding over a drink in a local pub, at an association meeting or at any social setting.
It does not matter how the agreement was reached or whether it has been carried out. What matters is whether competitors have agreed to collude.
(b) Bid Rigging
Bid rigging occurs when competitors agree on who should win a tender. To support the cartel member, who has been designated to ‘win’ that tender, the other members may refrain from bidding, withdraw their bid, or submit bids with higher prices or unacceptable terms. Cartel members may agree amongst themselves to take turns to be the designated ‘winner’ or on how to reward ‘supporters’ of the winning bid, for example, by giving sub-contracts to them.
Bid rigging usually results in the party inviting the tender (the tenderee) paying more than they would if the tender was competitive. The whole purpose of bid-rigging is to stop low bids. These higher prices are inevitably passed onto consumers. A non-competitive tender process may also result in the tenderee receiving lower quality goods or services. Bid-rigging may take place for tenders called by the private or public sector.
(c) Market Sharing
In a market sharing agreement, competitors divide customers by, for example, geographical area or customer type (e.g. business/non-business) and agree to sell only to their allotted customers. As a result they do not compete for each other’s customers. The effect of such agreements is that the customers are not able to shop around for the best deals as they have fewer suppliers.
(d) Production Controls
Production control involves an agreement between competitors to limit the quantity of goods or services available in the market. By controlling the supply or production of goods or services, the cartel is able to, indirectly, increase prices to maximise their profits.
Why are cartels bad?
Cartels inhibit competition since there is little or no incentive to lower prices or provide better quality goods or services through operating efficiently or investing in technology and innovative processes. As a result, consumers are hurt and there is likely to be harm to the Singaporean economy as well. In particular, cartels cause harm in the following ways:
(a) Businesses pay higher prices which result in higher business costs. These higher costs are eventually passed on to consumers by way of higher retail prices.
(b) Cartel members have less incentive to innovate or produce better quality goods or services.
Cartels can also affect the economy as a whole. Apart from consumers, downstream firms may, due to higher costs or reliance on local products that are not as innovative as those in other countries, be less internationally competitive. Competition not only spurs lower prices and better quality of goods or services; it also helps boost production as consumers may be inclined to buy more at lower prices.
How to spot a cartel?
Susceptible Markets:
Although cartels may occur in almost any industry and can involve goods or services, certain markets may be more susceptible to cartels because of the nature of their industry structure and the way they operate.
Markets which are more likely to give rise to cartels tend to have the following characteristics:
- Few competitors (easier to communicate with each other);
- Products with similar characteristics (makes it easier for cartel members to monitor each other’s prices);
- High barriers to entry for potential entrants (high prices set by the cartel will not be easily upset by a new entrant);
- Established communication channels between competitors (helps them to agree on prices and monitor each other); and
- Excess production capacity (there is more likely to be below cost pricing with competition so there is a greater incentive for cartel members to collude to stop this from happening).
What can be done about cartels?
Be Vigilant!
Although cartels generally operate in secret, you may be in a position to notice if the actions of your supplier do not make economic sense.
The first line of defence against cartels is to be alert. If you suspect a cartel, keep records of the events leading to your suspicions:
- Note down the date and time of conversations with suppliers when the events are still fresh in your mind; and
- Keep copies of all relevant documents, for example, records of a tender and all communications with the tenderers.
Voice your concerns to the CCS and provide us with as much information as possible. While the CCS is reviewing the matter, please refrain from discussing your suspicions with the suppliers involved as this may jeopardize any investigation that the CCS may take.
Your vigilance will help to ensure the continued competitiveness and efficient operation of the Singapore economy with benefits for consumers and businesses alike.
Confidentiality
When you make a complaint to the CCS and you think that any information you provide may seriously damage your commercial interest if it is disclosed, you should clearly mark the information as confidential and explain why this is so. You should try to limit the amount of information for which you are claiming confidentiality and raise such claims with us at the earliest opportunity. Please note that we are unable to accept blanket requests for confidentiality unsupported by reasons.
CCS will ensure that the information provided remains confidential and your identity stays protected.
What can the CCS do?
Complaints will be evaluated to see if there are sufficient grounds to justify investigation. The CCS has substantial investigation powers which it can exercise if there are reasonable grounds for suspecting that the Act has been infringed.
Cartels infringe section 34 of the Act. The CCS can impose substantial financial penalties of up to 10% of the turnover of the business in Singapore for each year of infringement, up to a maximum of 3 years.
Leniency Programme
As cartel activities are often conducted secretly, the CCS has a leniency programme to encourage cartel members to come forward to provide information on cartels. Under the leniency programme, a cartel member, who is the first to come forward and provide evidence of cartel activities before commencement of formal investigations, will be given full immunity from financial penalty. For more information on CCS’ leniency programme, please click here.
Contact CCS
By Email:
ccs_complaints@ccs.gov.sg
A complaint form is also available to guide you on the information required for CCS to assess your complaint. Please click here to access the General Complaint Form. You may post or email us the complaint form once it has been completed.
By Post:
Competition Commission of Singapore
5 Maxwell Road #13-01,
Tower Block MND Complex
Singapore 069110
(Please mark "COMPLAINT" clearly on the top left hand corner of the envelope so that we may speed up the processing of your complaint.)
By Fax:
(65) 6224 6929
We would usually expect complaints to be made in writing with as much factual information as possible to enable us to assess the case. Should you wish to talk to one of our officers before filing a complaint, please call our hotline: 1800 325 8282.
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